In 1999, Steve and I went through a bankruptcy which, though hard at the time, turned out to be a great thing because we learned how to be financially smart after that. It was a hard lesson that came with a lot of stress, panic, and anxiety for me, but I’m so glad to have had the opportunity to learn it when I did. Today I know how to manage my money and am not in fear of financial crisis. Learn from me…

Avoid Student Loans
The only time you should borrow money to go to school is if you’re 100% certain the job you’ll get with that degree will more than cover the expense of getting the degree. I knew a guy who took out a loan for $55,000 to get a Bachelor’s Degree in Philosophy. He’s still paying back his loan and he’s not even a philosopher. I also know a woman who took out student loans to the tune of $40,000 to become a preschool teacher. I doubt she’ll ever see the end of that tunnel.

Be realistic. If you’re really smart, aced your MCATs, and can’t afford medical school, take out the loan. Job security is pretty high and you know you’re going to make good money. Really think it through before you take out a loan for education. You go to school to earn a better living not to start out your life in debt.

Find ways to save on educational expenses. Go to a less expensive college, apply for a scholarship, see if you qualify for financial aid that you don’t have to pay back, take advantage of a work-education program, live at home instead of abroad, save up for college until you can afford to pay for it without going into debt, etc.

Most people don’t even go into the job field from which they obtained their degree, so make sure you’re committed to your career path before you buy it with blood and sweat and several years of your life. I majored in Psychology in college, but I went to a state school that cost just $1400 a semester, which I easily made with a job during the summer. I was accepted into a University but the cost would have been 5 times higher and I didn’t think it was worth paying for. As it turns out, I am not even a psychologist today so I’m glad I didn’t pay tens of thousands of dollars for my education.

Pay Off Your Credit Cards In Full Each MonthIn college I started getting credit cards in the mail. Cool, I thought, I’m an adult now! Each time the bill came I paid it in full, until one day a friend of mine told me I could make the minimum payments and that was okay. “What? You mean I can send in $10 for that $100 microwave I bought last month?” He replied, “Yeah, think about it. That microwave was $100 and you only have to pay $10 per month for it, so you can keep spending and buying more on your credit card.” Wow, neato! So I did. Oh, what’s this… compounded interest? Oh, that goes up every month. That $100 microwave ended up costing me $180. “Yeah, but you didn’t have to pay for it all in one month!” my friend would tell me. This way of thinking is a fast ticket to the dark side of debt.

Carrying a credit card balance is like taking a loan out from the bank. If you’re one of those people who plan on making just minimum payments on your cards ask yourself if you’re willing to pay $180 for something that should only cost you $100. And ask yourself if you’re willing to risk bankruptcy for a microwave (or those shoes, or that big screen tv, etc.)

The only time you should carry a balance on your credit card is if there is an emergency and you don’t have the cash to pay for it up front. Credit cards are not evil if you pay them off in full each month. If you ever need to carry a balance, pay more than the minimum and don’t make any new purchases until the emergency is paid off.

Credit cards are also important to establishing credit, so don’t avoid them, but use them wisely and respect them. Credit card companies make money when you fail to pay your balance on time. They like to charge fees for missed payments, cash advances, and going over your limit. You can be fee’ed to death if you’re not careful.

Know How Much Money You HaveMany years ago my brother was complaining to my father about the bank always charging him for bounced checks. He said, “But Dad, how can I be overdrawn? I still have unused checks in my checkbook!” My dad took a look at his checkbook and saw what a mess it was. My brother wasn’t keeping track of his money well at all so he was constantly paying overdraft fees. He had no idea how much money he had, and waited until his statement came at the end of the month to see. But that’s not an accurate view since transactions can often take days or even a week to be accurately reflected in a bank statement.

I know at any given moment exactly how much money I have in my checking account. To the penny. Why on earth would this be important? I don’t know… so you don’t spend money you don’t have! No bounced checks, no late fees, no bad credit, no jail. Always know how much money you have. Otherwise how will you know if you can afford something?

Pay Yourself FirstThis is a wonderful concept both financially and psychologically. I got this concept from reading The Richest Man In Babylon and it was reiterated in Robert Kiyosaki’s book, Rich Dad, Poor Dad. Every month or every time you receive money skim a certain percentage off the top and put it into a savings account. Use the rest to pay your bills. When I first started doing this I decided to put away 10% of my net income. I remember the first month I put away a whopping $9. But the habit was started! The next month it was $40 (good month!). And on and on. One day I realized I had amassed $6,000 doing this. You can use the savings account for whatever you want. A vacation fund, an emergency fund, a save-up-for-a-car fund, or just retirement. Eventually I started putting away 5% of my gross income. Choose your percentage, but put away something. It will help you feel like you are living in abundance and not sinking into a financial hole.

Live Within Your MeansSo many people get into debt because they buy things they can’t afford. They want it and they don’t want to wait until they can afford it. That’s what credit is for right? Wrong! Ideally, you want to live on 70% of your income and allocate the rest for savings, investments, emergencies, and donations. If you’re constantly spending 100% of your paycheck just to live then what happens when there’s a crisis? Life is full of the unexpected. What if your car breaks down and you can’t get to work? What if your parent dies and you can’t afford a plane ticket back home? What if you get fired?

If you’re already living beyond your means cut back immediately. Take in a renter or roommate, go back and live with your parents, cancel cable and water delivery, mow your own lawn, stop eating out, shop at used clothing stores, etc. If you’ve cut all the way back and you still aren’t living within your means then …

Increase Your Income
Want stuff? Can’t afford it? Make more money. Until you do, don’t buy it. Simple as that. Get a second job. Ask for a raise. Increase your skills so you can get a better job. Get your kids a job. I was standing in line at the post office once behind a couple with two kids. The mom turned to the two boys who looked to be maybe 12 and 14 and said, “I got you two a job. Every Tuesday afternoon you’re going to Mrs. Needle’s house to mow her lawn and tidy up the outside. She’s going to pay you $25 each for one hour of work.” The boys did not look at all happy, but I’ll bet there are a lot of adults out there who could use an extra $25 for one hour’s work! Kids can babysit, help out the elderly, or take a paper route. It will empower the kids to contribute to your family’s income. When I was young I used to babysit for 50 cents an hour. My how times have changed!

Get InsuranceDo not skimp on insurance. Medical bills can drive you all the way to bankruptcy court even if you make a ton of money. Our son, Kyle, had to spend 10 days in the Neo-Natal Intensive Care Unit when he was born. The cost for 10 days of care was $89,000. With our insurance, we paid only $3,000 which was his yearly deductible. Even if his bill was $1,000,000 we would have paid $3,000. Today our insurance is even better. Now we have a family deductible of $3,500 total, so if tragedy struck and we were all in the hospital at the same time and the bill came to $8,000,000 we would pay just $3,500. Check your health plan because if you have an HMO you may have to pay 20% of the charges, which in this case would be $1.6 million. I don’t know many people who can afford that much money out of pocket.

The same goes for car insurance. Get the minimum if you have to, but make sure you’re covered, and make sure you’ve got your deductible in your savings account. Talk to an insurance specialist to find out what makes the most sense for you.

If you’re the head of your household and you’re supporting a family, strongly consider getting life insurance so your family isn’t buried under a mountain of debt during their grief. Make sure they have at least a year’s worth of income to get back on their feet.

Don’t Screw the IRSPay your taxes. If you’re self employed or an independent contractor always be sure you’re putting away money to pay taxes at the end of the year. Get with a good tax accountant so you can anticipate what you’ll need to save in advance. I know people who are deeply in debt to the IRS. Sometimes you can negotiate with them for a lower fee, but most of the time you can’t go bankrupt on the IRS. They’ll haunt you until you pay them off, and they can garnish your wages or put liens on your property.

Ask For HelpIf you’re already buried under a mountain of debt, see a credit counselor. They work with credit card companies to stop fees and charges, arrange a lower monthly fee, and even release you from some of your debt. They are free to you so use them. But the best defense is a good offense: don’t go into debt. If someone helps you get out of debt, like loaning you money to pay off your high interest cards, don’t sink into debt again with your new debt-free card! Pay back your friend or family member who loaned you the money.

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Increase your income, lower your expenses, live reasonably and within your means. Never spend money you don’t have unless it’s a true emergency, and mitigate your risk by making sure you’re insured against catastrophe. Don’t avoid your debt or pretend you don’t have a problem. Save money for emergencies and retirement. And don’t pay more for your education than it’s worth!

If you’re young, take my advice to heart. You don’t want to lose everything you’ve worked so hard for. And if you’re already in your 30’s, 40’s, 50’s, etc. it’s not too late for you. Follow the above principles and get started back on the road to good financial health.

Erin Pavlina is a highly gifted intuitive counselor who connects with your spirit guides to provide you information and insights that will help you on your path. Get clarity, assistance, and direction that will lead you to a happier and more fulfilling life.